EurozoniaAug 9, 2011

No Vacation From Volatility

He is taking a seaside view of the crisis, says the Financial Times, noting that Italian economic policy is “in effect being dictated from outside as Italy becomes the latest front line in the battle to save the euro from the sovereign debt crisis.”

Chancellor Merkel is on vacation, taking a hiking holiday in Italy. Prime Minister Cameron? Also in Italy, where he not only failed to tip a waitress, but underpaid her. On the morning of Monday, Aug. 8, on holiday in Denmark, I expected the worst—Italy and Spain falling into the sea under the weight of mounting debt, a day of frightening and poorly scaled graphs, of pensioners exchanging gold teeth and jewelry for shotguns.

Instead, the European Central Bank announced early on Monday morning that it would buy up Italian and Spanish government bonds for the first time. A Band-Aid on a deep wound—volatility continued, and as trading ceased German and Italian stocks had taken hits, and Greek stocks reached a 14-year low. I guess volatile is good because it means things aren’t just going down.

For his Italian critics, Berlusconi must focus on reforms, not vacation, and recall Italy’s parliament from the summer recess. Critics suggest Berlusconi is surrendering sovereignty by making a deal with the ECB that will require accelerated cuts to reduce debt and unemployment.

There is no easy solution to this crisis. But every action taken by the Eurozone seems to be followed by an analyst suggesting how essential it is that some substantial and greater action comes later. Spain’s Prime Minister Zapatero interrupted his vacation, rushing back to Madrid last Thursday, but he’s already gone away for another 11 days. The politicians need their rest; a long crisis awaits.